The Outlook for Video Startups in 2009

The new year doesn’t promise to bring much in the way of good tidings for most startups, much less those with the shaky business models found in digital media. But, at the same time, online video consumption is a strengtheningreality that won’t be suppressed by tough economic times. So, if you’re involved in a video venture looking out at the spread for 2009, where do you stand? [digg=http://digg.com/tech_news/Your_Favorite_Video_Startup_Might_Shut_Down_in_2009]

First of all, let’s talk about where things ended up last year. The big news items for video startups (and young, internal ventures at big companies) in 2008 were acquisitions, layoffs and shut-downs — and of course fundings. Many of the companies we cover raised funding last year, though the pace of new investments slowed along with the economy. (As for including a category for IPOs…yeah right.) To recap some of the highlights (and lowlights):

Acquisitions: There were no blockbuster acquisitions in 2008 — at this point it seems impossible that anyone will ever match 2006’s Google-YouTube. At $160 million, Yahoo-Maven was probably the biggest deal that’s directly relevant to our space, but that deal has faded, along with the products involved. Other than a couple biggies on this list, you’ll be forgiven if you hardly recognize any of the names.

Shut down: This category was actually smaller than we might have expected, given how tough it is to succeed in this business. Last year, when we asked a panel of online video experts — from video makers to professors to VCs and media execs — what would happen in 2008, one of the most common answers was that me-too video sites would shut down. Here’s what they told us:

“If you are running an online video company that features non-premium, commodity content and you missed the Internet ‘network effect’ enjoyed by YouTube and a few others, it might be time to cash out.”

“Sadly, the second-tier video sites this year will sell to larger companies or fade away.”

“Any of the companies who have raised $15 million or more and are running out of funds now are in serious danger.”

Well, it turns out doomsday wasn’t quite nigh… But it’s a good bet that many of the startups on the layoffs list will be forced to make even deeper cuts in 2009.

But people are watching more and more online video, from user-generated video to TV episodes to a growing portion of web video originals. Here are the consumption stats:

Unfortunately, global video stats are hard to come by, but here’s one impressive measure of how much video has infiltrated our lives: comScore says U.S. online video watchers watched 273.1 minutes of online video in the month of November 2008, up from 195 minutes in November 2007. And the number was only 151 minutes in January 2007. A 40 percent increase in consumption in a single year is massive, and there’s no reason to think it will go away.

And what about the money? Here’s what we’re looking at for market size:

eMarketer has been looking at video advertising revenue closely. First it said 2008 would net $1.3 billion in U.S. video ad revenue, but then halfway through the year it revised that estimate to $505 million. By the end of the year, that number was bumped up to $587 million. Notwithstanding the whole “track record” thing, here’s this year’s eMarketer forecast: $850 million in U.S. online video ads 2009.

As for paid video, it’s the red-headed step-child of video business models — but it’s also being opened up in new ways by services like Netflix, which includes unlimited online streaming with most of its physical DVD rental plans, and sports services like the exemplary MLB.tv. ABI Research forecasts $2.49 billion in worldwide — N.B. worldwide, not just U.S.! — revenue for paid video over broadband, more than double the $1.16 billion it estimated for 2008.

So what’s next on the agenda? I am generally uncomfortable with predictions, given how self-serving they are (plus I hate to be obvious or wrong). But here are some of the most provocative and specific video-related predictions I’ve seen from people who take an active interest in the space.

Rise of video use by marketers for SEO — “a short cut to the top of Google” (Kevin Nalty)

Closure of most of the startups on this list: Revision3, ON Networks, NextNewNetworks, 23/6, Funny or Die — “Normal people have no idea what any of these things are.” (Rex Sorgatz)

“The biggest trend in online video is where and on what people will watch” (Hulu CEO Jason Kilar). Is this a smoke signal given the source? Hulu was the break-out story of 2008, but it’s only available on the web right now. Meanwhile, the push to bring web content to the TV, driven by Netflix, is gearing up to be a prominent storyline in 2009.

So, there you have it, a cornucopia of data points and pointers. Of course, when it all comes down to it, silly things like founder dynamics, funders’ indulgence, and luck will likely have as much a part in your success or failure as the market. What’s sad is that we may not see a lot of new startups this year, just at a time when some of the best ideas about online video are being crystallized into shows, products and services that people actually want and enjoy. But if you’re lucky enough to have a little runway left, we hope to see you out there.